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COVID-19: Confronting Uncertainty Through and Beyond the Crisis The COVID-19: Confronting uncertainty through and beyond the crisis The power of scenario-thinking to enhance decision-making April, 2020 COVID-19: Confronting uncertainty through and beyond the crisis The changing calculus of uncertainty For a generation of business leaders, we have been Questions abound, for which – at the time of writing – there operating in and living through what we believed were are few, if any, answers. uncertain times. Continual upheavals, disruptions and global shifts like digitization, technology transformation, What, for example, will be the global health consequences changing geopolitics, evolving business models, and a of the pandemic? What will be the near-, mid-, and longer- changing consensus on globalization and trade have term consequences of our responses to it, and to the for decades challenged the very notion of executive various measures that countries are taking to “flatten the decision-making. We have been talking about a volatile, curve”? How might the crisis change the way we live and uncertain, complex, ambiguous (VUCA1) environment for work in the future? How will the crisis influence relations most of our lives in business; two futurists even recently within and between major countries? How will a country’s averred that acceleration itself was accelerating.2 role in – and dependence upon – global supply chains and trade change, based on its responses to the crisis? What The COVID-19 pandemic, however, is changing–or has will be its impact on the roles of the private and public already changed–our collective calculus of uncertainty The sector? How will these changes be amplified by technological reality is, there exists no reference case for the COVID-19 disruption? What will be the nature of the recovery and crisis in living memory. Yes, there have been flu pandemics. rebound? And for those looking beyond the crisis, what Yes, there was Black Monday and the 2008 financial crisis. opportunities may be captured by the fortunate or the bold? And yes, there have been localized threats and disasters with regional or national implications: Chernobyl, the Iraqi invasion of Kuwait, 9/11, Hurricane Katrina. But from our vantage point, the COVID-19 pandemic is more global in scope, more profoundly impactful and far-reaching, and more complex than any other crisis that today’s decision-makers have experienced or contemplated. No country or sector, and no company, executive team, or individual leader will be immune from COVID-19’s impact and consequences. No strategy will survive fully intact. Moreover, it’s likely that the choices organizations face will only get tougher and more complex as we collectively anticipate the post COVID-19 environment. 2 COVID-19: Confronting uncertainty through and beyond the crisis Typical responses to uncertainty In uncertain times, executives aren’t spared the responsibility the past experience3. Another is to be over-confident about of critical decision-making. If anything the time-frame for the outlook (whether good or bad) and the inherent veracity making choices shortens, even as the contextual uncertainty of choices. makes decision-making commensurately harder. Recent business history provides many instances of giants In our experience, though, many executives and boards tend toppled by misunderstandings of uncertainty – whether toward one of two types of response to uncertainty. The first they be financial players taken by surprise during the last is to recognize its existence, depth, and complexity but to financial crisis, phone manufacturers failing to anticipate the become paralyzed by it, which often manifests as slow, timid smartphone revolution and, later, the iPhone’s potential to or erratic decision-making. rewrite the industry, or computer manufacturers that missed the PC market’s bullet train in the 1980s. Misinformed The alternative is brashness in the face of uncertainty, as bullishness and complacency caused these organizations though to wish away complexity. One potential outcome either to overlook a firm-diminishing downside or to is the pre-disposition to arrive at fast, superficial completely miss a significant upside opportunity. assessments and simple answers, often mis-analogizing 3 COVID-19: Confronting uncertainty through and beyond the crisis Embracing uncertainty So, what is the antidote to indecision or, conversely, over-confidence? According to common business wisdom, the best leaders embrace uncertainty. But what does that actually mean? Embracing uncertainty means knowing what you know, knowing what you don’t or can’t know, and knowing the difference.4 Acting in the face of uncertainty has been a defining theme of modern business, even within a context of macroeconomic stability and continuity. But it’s becoming harder to shock today’s executives; potential responses to what were considered black swan events even a generation ago are today built into most strategic scenarios. By any standard, however, the COVID-19 pandemic qualifies as a true outlier. Embracing this fundamental reframing – widely described as the “next normal” – means confronting uncertainty head-on, and building it into your decision-making. Our perspectives on how to do so entail the following: Consider uncertainty under different competitive dynamics. Broader structural shifts need to be time horizons. The near-term uncertainties of considered, along with regulatory changes that might apply COVID-19 and its consequences are fundamentally to industries and ecosystems relevant to your company. different from the pandemic’s mid- and longer-tem uncertainties and their consequences. Depending on Use uncertainties to envision where we live in the world and our relevant industries, multiple different futures. Embracing right now we’re asking either how long this will last or what uncertainty means acknowledging that we the nature of the rebound might be. At the same time, can’t know for certain what the future holds, and being we need to consider the contours of the recovery. Which comfortable with that notion. The key is to imagine and sectors will ascend or, conversely, recede? How might consider divergent futures, whether short term or longer our collective experience with the pandemic reshape term. The most proven and powerful way to do this is to use business, society, and politics? What will the “next normal” scenarios. As described in a Harvard Business School note look like? Will new habits that are flourishing or required on the topic, “[Scenarios] are plausible alternative hypotheses under COVID-19, such as online shopping, working from about how the world might unfold, specifically designed to home, and physical separation, persist or recede? highlight risks and opportunities facing the organization. Effective scenarios challenge … thinking … by instilling a deeper Maintaining sightlines across each of the response, appreciation of the many factors that could shape the future" 6. recovery, and thriving beyond the pandemic phases will For example, had we hypothesized scenarios for the future be critical to long-term success. of mobility before COVID-19 struck, we might have twinned the rapid proliferation of autonomous vehicles with the rise Identify the most salient uncertainties of shared transport solutions to come up with very different for your industry and business. It’s easy to possible futures – for cities, automotive OEMs, and other get caught up in the scope of uncertainty that mobility ecosystem participants. surrounds COVID-19; all at once, it can seem like everything is uncertain. It is imperative, however, that decision-makers In the case of COVID-19, we might instead begin by weighing understand which uncertainties are most critical to their the various health and economic factors that point to business or organization within the time-frames they the potential duration and depth of the economic shock, are considering. In the immediate term, that has meant and potential recovery. Over the longer term, we might understanding and weighing the pandemic’s impact consider the ultimate pattern of disease infection, the level given the uncertain outlooks for health and economics of collaboration within and between countries, the ways and, in turn, their interaction with crucial dimensions like global supply chains might reconfigure, and the possible business continuity, liquidity, assets use, and redeployment. waves of innovation that COVID-19 may trigger. Since all Over the middle to longer term, the focus needs to shift these drivers are deeply uncertain right now, we need the to factors that influence the direction of a company’s disciplined approach of scenario-thinking to help us model strategy, position and resilience5, supply and demand, and and examine how such factors might interact in expected, unexpected, and possibly extreme ways. 4 COVID-19: Confronting uncertainty through and beyond the crisis Importantly, scenarios are neither accurate predictions of the future, nor simply sensitivities as to how any one Embracing uncertainty business might incrementally deviate from a base case. At their core, the best scenarios are coherent stories that push leaders to consider very different ways that the means knowing what environment might evolve. Seek diverse perspectives. If there has been you know, knowing any moment to incorporate diverse perspectives into decision-making, now is it. Not with the intention of slowing down the process, but to make it better. what you don’t or can’t Peter Schwartz, SVP Strategic Planning, Salesforce, and
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